"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, February 14, 2012

Gold Shares continue to lose ground against gold itself

The gold mining shares, as evidenced by the HUI, continue to lose ground against the price of gold bullion itself. They are approaching the three year low in this ratio that was made 3 weeks ago. One would think that they would find some buying support soon for valuation reasons.

The hedge funds continue to ply that ratio spread trade which they will do until they can no longer make any profits off of it. Maybe we are seeing a bit of a delayed reaction to news that the Obama budget contains a hefty 5% royalty tax on their revenues. That budget has zero chance of passing in its current form but it could be that the mere mention of such a thing has gotten some owners of these shares nervous especially if those risk aversion trades come back in vogue.

Once again it comes back to the desire on the part of investors to gain LEVERAGED exposure to the gold price. If they can do this by using the ETF and not have to concern themselves with risks of a political nature such as what is being attempted by the current Administration, they why bother buying these things at all is the thinking that is currently in vogue among the larger part of the speculative community at this point.

The mining shares are also now seriously underperforming the broader stock market continuing a pattern that has emerged since last summer.

Some of the readers wrote to expres their desire to see a tax of this sort hit the mining sector. My only response to that is very simple - a royalty tax comes right off the bottom line of any company involved in mining here in the US. The lower the net profits of a company, the more it impacts their share price. Be careful what you wish for if you hold these shares in your portfolio and take the side of the Administration that this is a good and necessary tax. That is your portfolio and your wealth that is going to take the hit. If you are willing to lose your money over it - fine and dandy - but then do not complain and bitch when you see your portfolio going nowhere or actually moving in the wrong direction.

Hedge funds are not going to acquire mining company shares out of the supposed "goodness" of their hearts. They will only buy them if they think that they can make a profit on them and that necessitates continued strong and rising profits from these companies. Anything that might impact that will be part of the equation in calculating whether or not they meet these criteria.


  1. Don't forget that the algos are constantly hammering away on these shares too. I used to watch the tape tick by tick on several of my favorite miner shares (CDE and SLW). The manipulation was rampant and sickening.

    Now who is doing the manipulating is anybody's guess, but these issues were being artificially beat down for sure IMHO.

  2. a pox on anyone wanting to raise any taxes.

    just more money they will throw down a rat hole.

    i lift my first happy hour beer to a regime change in november.

    1. Cheers Boatman. Drinking a Peroni with you.

  3. I am a UK investor, and have invested in the individual companies that comprise the HUI, through a share dealing firm.

    The truth is, Lord only knows what they really did with my money. My statements show me as owning the shares. But for all I know, that 'ownership' might just be tracking the shares. The broker might be using the money for some other purpose, maybe even to short those very same shares. A lot of dirty practices were revealed by the MFGlobal collapse.

    I am awaiting an opportune time to exit my positions. Trust is gone.

  4. Unfortunately, the possibility of this royalty tax passing combined with the increased costs some mining companies have estimated for 2012 means the miners will probably have another lousy year. I hope I’m wrong though.

  5. Always read you - thank you.

    Miners are a nightmare.

    A word on taxes. The focus is so heavily on miners and any governments targeting them.

    The target in actual fact is much much wider. ie Rare coins - numismatic coins always weren't taxable - regarding sales taxes etc - but that is changing we will see taxes here too.

    So anything of "value" will be taxed!

  6. Dan,
    Between the Bullion Banks in control of the metals, and the Fed devaluing our dollar, and the Federal Government starting to act like the Weimar, Stalinist, North Koreans, I have chosen to put my money in oil, as well as Guns. I think I will need them soon. Sad. Upon the COLLAPSE, you will find me in the hills of the Appalachias. Previous post. Dan,
    I just sold all my mining stocks and purchased a beautiful AR 15, a Kimber TLE.45, a really pretty auto shotgun. I think it will pay much more dividens when these individuals continue to erase America as we know it.


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